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Post-election year / year of 1 – a seasonal highlight – columns

Post-election year / year of 1 – a seasonal highlight

What do share indices and Bundesliga soccer clubs have in common? Right, sometimes they have a good season, sometimes a bad one. It is obvious that the Dow Jones® is not FC Bayern Munich. The traditional American share index tends to have seasonal fluctuations compared to the German record champions. Since the new year is still very young, today we take a look at the average performance of the months of the “1 year” over the past 121 years in the Dow Jones®. We also look at the average monthly performance in post-election years and compare this with the total average monthly performance and the year of 1. 2021 is already a special year in at least one point: the year of the first and the post-election year coincide. This was last the case in 2001 and only occurs every 20 years. Back then, the Internet was still in its infancy, while investors were calling the new technology “the devil’s stuff” after the dot-com bubble burst. But how is the Dow Jones doing in the first and post-election years? January is the month of good intentions.

Dow Jones Industrial Average (Daily)

Chart Dow Jones Industrial Average

Source: Refinitive, own calculations²

5-year chart Dow Jones Industrial Average

Chart Dow Jones Industrial Average

Source: Refinitiv, tradesignal²

Good New Years resolutions

So the average year on the stock market starts well. Overall, January yields a return of 0.75%. If it is a post-election year, then only 0.55% can be fetched. The best resolutions, however, are made in the 1s. With an average return of 1.79% and a hit rate of 75%, the new year has started well under good conditions. By February the good resolutions are mostly forgotten. The first year seems to be an exception here, however, because with an average increase of 1.87% it continues its good start to the year. The hit rate remains very strong at 75%. The hangover is more likely to set in in post-election years, when investors have to write off an average of 1.35% with a weak hit rate of 40%. Overall, February brought slight losses of -0.10%. The first break treats itself to the 1st year in March. While positive returns of 0.67% and 0.89% can be expected both in the overall assessment and in post-election years, the year 1 cannot keep up with an average loss of -0.22%.

Dow Jones Industrial Average (Daily)

Chart Dow Jones Industrial Average

Source: Refinitive, own calculations²

First spring fever, then summer slump

Nevertheless, two thirds of all 1s end positively in March. In view of the promising rally at the start of the year, however, we can speak of a breather. There are real spring fever in April. Overall, this month is already extremely positive (average return: 1.29%; hit rate: 59.5%), but the post-election years in particular are flourishing here. In April they achieve an average return of 2.55% with a hit rate of 60%. So much in advance: In post-election years, April is the best month of the year. The 1s, however, switch back to forward gear and achieve an average return of 1.24%. In two thirds of all cases, April ends positively in a 1 year. “Sell in May and go away” is the first part of an old stock market adage. What is meant here is the beginning of the dreaded “summer slump”, which causes lethargy rather than enthusiasm on the stock exchanges. In fact, when viewed as a whole, there is no big money to be made either in May (-0.11%) or in June (+ 0.28%). It was not until July (+ 1.38%) and August (+ 0.90%) that noticeable growth was seen again.

Dow Jones Industrial Average (Daily)

Chart Dow Jones Industrial Average

Source: Refinitive, own calculations²

Q3: Seasonal drought

So early summer doesn’t seem to have any gold in its luggage. It’s quite different in post-election years: in May, an average profit of 1.16% can be achieved. However, June shows a very poor hit rate (36.67%) and an average return close to zero. In July, the post-election year puts in the turbo. It has the second best month of the year with an average return of 1.38% and a hit rate of 76.67%. The first year, however, has the May blues. With an average loss of 1.67% and a poor hit rate of 41.67%, the merry month is the second worst month in the entire 1er year. The mini return of 0.24% in June is also bought with a weak hit rate of 33.33%. From July the first year goes to diving station. While the seventh month of the 1st year causes an average loss of -0.62%, in August it is already -0.91%. The ninth month of the year marks the bottom of the seasonal drought. With a loss of -5.29% on average, the already weak September shows its deep red face.

Dow Jones Industrial Average (Daily)

Chart Dow Jones Industrial Average

Source: Refinitive, own calculations²

Black sheep and crisis month

The September losses from 1931 (-30.7%) and 2001 (-11.1%) weighed particularly heavily. This was on the one hand the Great Depression of the Great Depression and on the other hand the terrorist attacks on the Twin Towers of September 11, 2001. Apart from these extreme scenarios, the weak hit rate of 16.67% in September of the first year leaves no room for big ones Hopes. But even in the post-election years there is nothing to be gained in September (-1.09%). It is interesting, however, that in 50% of the cases September ends positively in a post-election year. “But remember to come back in September.” Of course we haven’t forgotten the second part of the stock market wisdom. Once the seasonal weak period has ended, investors let the general stock market year come to a profitable end. October starts leisurely with an average return of 0.23% to finally ring in the year-end rally from November (+ 1.12%), which ends with a reflective Christmas (+ 1.20%). The hit rate increases from October (56.67%) through November (63.33%) to the highest annual value in December (70.83%).

Dow Jones Industrial Average (Daily)

Chart Dow Jones Industrial Average

Source: Refinitive, own calculations²

Standard scenario: year-end rally

The post-election year started with jams in the last quarter of the year. Investors initially have to cope with an average loss of -0.88% in October before the year-end rally sets in here in November (+ 0.75%). In the post-election year, Santa Claus puts presents under the Christmas tree (average December return: + 1.59%). Here, too, the hit rate increases from 56.67% in October to 73.33% in December. The first year ended the year on the stock market rather calmly. In October there is an average of 0.57% on the account, followed by 0.70% in November and 0.64% in December. The hit rate increased only slightly from 58.33% in comparison to the year of the post-election or the overall consideration to 66.67% in December. What can we now learn from the analysis? First: the 1s are real early starters. The start of the year is characterized by high hit rates. The biggest returns here are on average in January and February. April is also relatively strong. However, from May onwards, its seasonal weak period mainly occurs in the summer months. After a deep red September, a leisurely year-end rally begins in October.

Dow Jones Industrial Average (Daily)

Chart Dow Jones Industrial Average

Source: Refinitive, own calculations²

Kostolany or Bundesliga?

Second, post-election years are seeing an extremely strong April. In fact, it’s the best month of the year. But July also has gold in its luggage as the second best month. Its weak season plays the average by-election year from August through October. The year-end rally does not begin until November, with a month’s delay. The average post-election year ends in December with the third-best month of the year. The results speak for a strong April 2021, but also for greater risk of setbacks in summer. Before the black sheep of the stock exchange months (September) is warned anyway, and especially in the first year. The postulate of a year-end rally is also part of the standard repertoire of a seasonally argumentative technician and should also be applied here. Nevertheless, surprises like the Corona crash in March of last year 2020 are always possible. To put it in André Kostolany’s words: “Anything is possible on the stock exchange, even the opposite.” But as people say in the Bundesliga: “In the end, the points are counted.”

Dow Jones Industrial Average (Daily)

Chart Dow Jones Industrial Average

Source: Refinitive, own calculations²

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